Analysts and investors welcomed Antero Resources Corp.'s midstream consolidation plan, which followed several months of review stoked by concerns about the Appalachian shale gas driller's cash-leaking pipeline business.
Antero announced Oct. 9 that Antero Midstream GP LP would acquire all of Antero Midstream Partners LP's 188.1 million of outstanding common units in a stock-and-cash merger deal, with the combined entity becoming a corporation named Antero Midstream Corp. MUFG Securities Americas Inc. midstream energy analyst Barrett Blaschke said the deal would amount to about $5.84 billion.
The deal would also eliminate Antero Midstream Partners' required cash payments to its general partner, which some midstream energy analyst had criticized for eating up the master limited partnership's quarterly distributions and increasing capital costs.
Analysts at Stifel Nicolaus & Co. said Oct. 9 that they were pleasantly surprised by Antero's decision to join the wave of companies converting from MLPs to corporations in the wake of federal tax policy changes. During an Oct. 9 conference call, Antero executives cited tax efficiency and investor preferences as reasons for ditching the partnership model in addition to "meaningfully" improving shareholder rights and voting power.
As of 12 p.m. ET on Oct. 9, Antero Midstream Partners shares were up about 12.4%, while Antero Midstream GP units had gained 6.1%, in line with equity analysts' expectations.
"We see major sentiment gains from the clarity provided by this transaction after [a] special committee review has weighed on Antero investor psyches since February 26," Robert W. Baird & Co. Inc. midstream energy analysts wrote in an Oct. 9 morning note to clients.
Before Antero announced the formation of a special committee Feb. 26 to address the MLP's equity value decline, hedge fund managers had voiced hesitation about the partnership's complex structure and incentive distribution rights obligations.
The simplification, which is scheduled to close in the first quarter of 2019, would also result in Antero Resources owning about 31% of the new midstream company. CEO Paul Rady said the driller does not anticipate spinning off its midstream segment anytime soon.
"We strongly believe in the tangible and intangible benefits of owning the midstream business and the value of the integrated model," he said during the call. "We do feel that [Antero Resources] will continue to hold a significant ownership in [Antero Midstream Corp.]"
Antero Midstream Partners had been required to funnel an increasing portion of its income to its general partner, a typical arrangement for U.S. midstream energy MLPs meant to incentivize distribution growth. Antero Resources said in early 2018 that Antero Midstream Partners' expected contribution would rise to about 40% by around 2020 and slightly higher in 2021 or 2022.